Tom Cowhey
Chief Financial Officer at CVS Health
Thank you, Karen, and thanks to everyone for joining us this morning. In the first quarter, our revenues were approximately $88 billion, an increase of approximately 4% over the prior year quarter. We delivered adjusted operating income of approximately $3 billion and adjusted EPS of $1.31. We also generated cash flow from operations of $4.9 billion, a lower result compared to the same quarter last year, primarily due to the timing of Medicare payments. Each of our segments and the enterprise as a whole are focused on executing against their goals and delivering on their financial targets. However, our health care benefits and enterprise results are being materially pressured by the level of Medicare Advantage utilization that we are experiencing. Clearly, this is a disappointing result for us. Let me walk you through some of the drivers and help you understand how we expect them to impact the remainder of the year. In our Health Care Benefits segment, we delivered revenues of approximately $32 billion, an increase of approximately 25% year-over-year. Medical membership was 26.8 million, up 1.1 million members sequentially, reflecting growth in Medicare, individual exchange and commercial group products, partially offset by the impact of Medicaid redeterminations.
Adjusted operating income for the first quarter was $732 million. This result reflects a higher medical benefit ratio, partially offset by higher net investment income and the impact of favorable fixed cost leverage due to membership growth. Our medical benefit ratio of 90.4% increased 580 basis points from the prior year quarter, primarily reflecting higher Medicare Advantage utilization, the premium impact of lower Stars ratings for payment year 2024 and unfavorable prior year development as compared to the prior year. Digging into the drivers of Medicare Advantage cost trends, we saw meaningful increases in utilization. We continue to see elevated trends in the same categories we discussed at the end of 2023, including outpatient and supplemental benefits, categories that appeared to be moderating earlier in the quarter, but which completed at levels, but in some cases, exceeded expectations. Adding to the outpatient and supplemental benefits pressure, we saw new pressures emerge from inpatient categories, RSV vaccines and other pharmacy benefits. Inpatient admits per 1,000 in the first quarter were up high single digits versus the first quarter of 2023. While a portion of this increase was anticipated because of the implementation of the 2 midnight malls, this result meaningfully exceeded our expectations for the quarter as inpatient seasonality return to patterns we have not seen since the start of the pandemic.
In our Medicaid business, we experienced medical cost pressures, largely driven by higher acuity from member redeterminations. We are working closely with our state partners to ensure the underlying trends are reflected in our rates going forward. Medical cost trends in our commercial business have not shown the same pressures we are experiencing in Medicare. Inpatient bed days are favorable to expectations, although higher than prior years. Mental health and pharmacy trends remain elevated, but overall performance of the commercial block is consistent with our projections. Individual exchange medical costs are elevated, but are consistent with projected membership mix and lower revenue payables in 2024. Our individual exchange business remains on target to to achieve its profit goals this year. We will continue monitor both of these blocks closely, but their performance to date is consistent with our prior projections. Days claims payable at the end of the quarter were 44.5 days, down 1.4 days sequentially. This decrease is primarily driven by the impact of membership growth and higher pharmacy trends, which tend to complete quicker and reduce DCP, as well as other typical seasonal items.
Premiums and reserves both grew sequentially approximately 20%. As a reminder, DCP is an output of our reserving process. And overall, we remain confident in the adequacy of our reserves. In early April, we saw multiple days of high paid claim activity, which is consistent with the the restoration of Change Healthcare and associated backlog from that disruption. While the final impact of the Change Healthcare disruption will not be known for several months, our most recent interim reporting suggests that our March 31 reserve balances are stable and could show modest levels of positive development, which is not incorporated into our current outlook. Our Health Services segment generated revenue of approximately $40 billion, a decrease of nearly 10% year-over-year, primarily driven by previously announced loss of a large client and continued pharmacy client price improvements. This decrease was partially offset by pharmacy drug mix, growth in specialty pharmacy and the acquisitions of Oak Street Health and Signify Health.
Adjusted operating income of approximately $1.4 billion declined nearly 19% year-over-year, primarily driven by continued pharmacy client price improvements, lower contributions from 340B and a previously announced loss of large clients. This decrease was partially offset by improved purchasing economics. Total pharmacy claims processed in the quarter were nearly $463 million, and total pharmacy membership as of the end of the quarter was approximately 90 million members. We continue to drive growth in our health care delivery assets. Signify generated revenue growth of 24% compared to the same quarter last year. Oak Street ended the quarter with 205 centers, an increase of 33 centers year-over-year. We continue to expect to add 50 to 60 centers in 2024. At-risk members at Oak Street ended the quarter at 211,000, an increase of 34,000 year-over-year. Oak Street also significantly increased revenue in the quarter, growing over 25% compared to the same quarter last year.
In our Pharmacy & Consumer Wellness segment, we generated revenue of approximately $29 billion, reflecting an increase of nearly 3% versus the prior year and over 5% on a same-store basis. Drivers of this revenue growth in the PCW segment included increased prescription volume with increased contributions from vaccinations as well as pharmacy drug mix. These revenue increases were partially offset by the impact of recent generic introductions, continued reimbursement pressure, a decrease in store count and lower contributions from OTC test kits. Adjusted operating income was approximately $1.2 billion, an increase of approximately 4% versus the prior year, driven by increased prescription volume, improved drug purchasing and lower operating expenses, including the impact of store closures. These increases were partially offset by continued pharmacy reimbursement pressure.
Same-store pharmacy sales were up over 7% versus the prior year, and same-store prescription volumes increased by by nearly 6%. Same-store front store sales were down about 2% versus the same quarter last year, but up 1% when excluding OTC test kits. As a reminder, the public health emergency was still active during the first quarter of last year. Shifting to liquidity and our capital position. First quarter cash flow from operations was $4.9 billion. We ended the quarter with approximately $1.9 billion cash to the parent and unrestricted subsidiaries. In the first quarter, we returned $840 million to shareholders through our quarterly dividend. We also completed our $3 billion accelerated share repurchase transaction, retiring approximately 40 million shares in the quarter. We do not expect to repurchase any additional shares for the remainder of 2024. Our leverage ratio at the end of the quarter was approximately 4x. This leverage ratio was higher than we expect to maintain on a normalized basis. We remain committed to maintaining our current investment-grade ratings.
Turning now to our full year outlook for 2024. As Karen mentioned, we revised our 2024 adjusted EPS guidance to at least $7 to reflect our first quarter results, as well as our updated expectations for the remainder of 2024. In our Health Care Benefits segment, we now expect adjusted operating income of at least $3.6 billion, down from our previous guidance of at least $5.4 billion. We now expect our 2024 medical benefit ratio to be approximately 89.8%, an increase of 210 basis points from our previous guidance. In the first quarter, Health Care Benefits medical costs, primarily attributable to Medicare Advantage, came in approximately $900 million above our expectations. If we break that down further, estimate that roughly $500 million of that variance is specific to the quarter or seasonal, including the larger-than-expected impact of seasonal respiratory and RSV costs and a return to inpatient seasonality patterns that look much more like pre-pandemic periods. As Karen mentioned, early indicators for April inpatient authorization support our current seasonality projections and their return to pre-COVID patents. We have also raised our expectations for RSV-related costs in the second half based on our experience in the first quarter. The remaining approximately $400 million of medical cost pressure in the first quarter, driven by elevated utilization that our guidance now assumes will persist for the remainder of 2024. The primary drivers of this projected variance include outpatient service categories, such as mental health and nickel pharmacy, as well as supplemental benefits such as dental.
Partially offsetting some of this pressure is better-than-expected volumes, expense management and increased net investment income, which together are expected to contribute approximately $500 million more than we assumed in our previous full year guidance, with roughly half of this offset occurring in the first quarter. In our Health Services segment, we are updating our estimate for 2024 adjusted operating income to at least $7 billion, a decrease of approximately $400 million. The majority of this adjustment is attributable to health care delivery, predominantly in our CVS Accountable Care business, driven by Medicare utilization and some out-of-period pressure. We also saw some modest utilization pressure on Oak Street during the quarter and are including a provision for higher trends for the remainder of the year in our updated guidance. The remainder of the pressure is in in our other businesses the Health Services segment, primarily driven by volume and mix trends the associated impact on our ability to deliver on network and client guarantees. Our expectations for the Pharmacy & Consumer Wellness segment remain the same with adjusted operating income of at least $5.6 billion. This outlook incorporates a cautious stance on consumer activity over the remainder of the year due to slowing front store activity in the first quarter.
We now expect 2024 share count to be approximately 1.265 billion shares, and our adjusted tax rate to be approximately 25.6%. Finally, we updated our expectation for cash flow from operations to at least $10.5 billion in 2024. You can find additional details on the components of our updated 2024 guidance on Investor Relations web page. We plan to share more detailed 2025 guidance later this year. But in an effort to help investors build reasonable expectations for next year, we wanted to share some preliminary thoughts on our outlook. Within Health Care Benefits, our Medicare Advantage business is projected to generate between $65 billion and $70 billion in revenues in 2024, but will experience significant losses. We are committed to driving meaningful improvements in our Medicare Advantage margins in 2025.
Given our projected baseline performance, 2025 will be the first step in a 3- to 4-year journey to get back to our target margins of 4% to 5%. Improved Star ratings in 2025 could represent a $700 million tailwind depending on membership retention levels, but also reduces our ability to adjust certain benefits. The remainder of our margin improvement in 2025 will be a function of pricing actions in an environment where we are facing headwinds from an insufficient rate notice and prescription drug coverages that substantially increase planned liability. We will take material pricing and benefit design actions for 2025, and the impact of those changes will depend on how cost trends develop in both 2024 and 2025 and how the market responds to those trends. In Health Care Benefits' other business lines, we are are building strong momentum. We planning for another year of margin progression in our individual exchange business. We've seen success in the group commercial selling season this year and were recently awarded several key Medicaid RFPs.
In our Health Services segment, early progress of our Cordavis business is encouraging and supports innovative approach to the biosimilar opportunity, driving differential savings for our PBM customers. In our Health Care Delivery business, we are committed to improving margins in CVS accountable care. Oak Street's margin trajectory will be supported by meaningful patient enrollment and a realignment of Medicare Advantage benefits as the market adjusts to elevated utilization. Signify continues to show impressive growth and is building momentum into 2025. We have received a strong early reception to our new pharmacy, which creates potential for outperformance in our PCW segment. As Karen mentioned, we are accelerating multiyear enterprise productivity initiatives to streamline and optimize our operations. Finally, framework contemplates a stable share count in 2025. While many uncertainties remain that could drive a wide range of outcomes, including our 2024 baseline performance and the potential that medical cost trends subside as compared to our current outlook. At this distance, our goal remains to deliver low double-digit adjusted EPS growth in 2025. Our team remains committed to executing against opportunities to outperform this guidance. With that, we will now open the call to your questions. Operator?
